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New IDC Financial Insights Research Asserts Financial Firms Implement Risk Based Approach to Fraud Detection and Prevention

Report explores use of advanced analytics for improved detection 

Financial firms constantly face a myriad of schemes and "bad actors" determined to commit fraud and gain access to customer accounts and funds. These bad actors are taking advantage of digital services and digital transactions to develop new frauds and schemes. Meanwhile, transactions are happening digitally and faster than ever before. As a result, IDC Financial Insights recommends that firms invest in new sources and combinations of data and advanced analytics to help uncover relationships between individuals, transactions, and events in real time (or near real time). In a new report, Business Strategy: The Use of Advanced Analytics in Fraud Detection and Prevention (Doc #US40137216), IDC Financial Insights examines the challenges and opportunities that firms face in developing and deploying fraud detection and prevention programs.

In this new report, IDC Financial Insights takes a look at the case for leveraging aggregated data and advanced analytics to improve fraud detection prevention programs at financial firms. Today’s fraudsters mimic customer and employees identities and legitimate transactions to avoid detection and arrest. To effectively combat this threat, IDC Financial Insights recommends financial firms use a combination of visible and less visible strategies to asses current and future fraud risks, develop deterrents to prevent fraudulent activity, and reduce the opportunities for customers, employees, and bad actors to commit fraud. Lead author and IDC Financial Insights Research Director,Bill Fearnley, illustrates with this example, "Imagine you are speeding on a highway with a keen eye out for law enforcement and speed traps. You're getting away with it so far. But wait, there is a police plane flying above and behind you that you don't see, monitoring your trip. Blue lights ahead. You are busted, by someone you didn’t know was there. Welcome to the new world of fraud analytics – deploying tools that firms can deploy to catch bad actors, from a perch that fraudsters cannot see."

Highlights of the new report include:

  • A discussion on some of the fraud threat forms, including: account takeover (ATO), phishing schemes, new account fraud, fraudulent transactions, and malware.
  • IDC Financial Insights believes firms must be proactive in their fraud prevention and apply a risk-based approach to customer and transaction risk scoring.
  • Third party data and analytics service providers can deliver access to aggregated data and advanced analytics that provide insights "outside the walls" of the firm and help analysts uncover relationships, patterns, and anomalies in customer relationships and transactions.

IDC Financial Insights recommends firms take a dual approach to fraud detection and prevention with a combination of highly visible (i.e. multiple cameras) and less visible programs. For less visible detection and prevention programs, aggregating internal data and external data and deploying advanced analytics (e.g. cognitive computing, machine learning, and complex event processing) can help firms take a wider view of data and information to discover new patterns and anomalies. Moreover, IDC Financial Insights outlines the following key actions to consider:

  • Centralize fraud operations: Centralizing operations, data sharing, and enabling collaboration among business units can help analysts uncover patterns and anomalies in transactions that look fine when viewed in isolation, but when combined may show patterns of fraud.
  • Augment fraud systems with 3rd party data and analytics: The insights gleaned in doing so can be used to augment customer profiles and investigations of bad actors and suspicious transactions.
  • Balance the customer experience and security requirements: Using advanced analytics and monitoring models can help to prevent fraud before it happens while limiting interference with the customer experience.
  • Deploy MDM strategies and tactics: It's increasingly important for firms to have formal master data management (MDM) policies and procedures in place so that information is secure and that access to sensitive information and analysis is granted on a very selective basis.

Fearnley adds, "Criminals and bad actors are developing more creative and aggressive fraud schemes and tactics to avoid detection and arrest. To effectively combat these threats, firms should be investing in risk-based approaches to fraud detection and prevention and using their privileged access to customer information and third party data and analytics services and combining them to help augment and automate their fraud prevention programs."